Large Livestock Loan Drive Rise in Farm Lending

The Federal Reserve’s Agricultural Finance Databook says lending activity in the agricultural sector increased slightly in the second quarter of 2018.  The overall number of non-real estate farm loans was roughly 2% higher than at the same time in 2017.  The slight increase was supported primarily by larger loans for livestock.

In the short term, The Kansas City Fed says higher livestock prices were likely responsible for the increased size of livestock loans, at least in the short term.  Looking longer term, the size of livestock loans has been trending higher, suggesting that farm consolidation has contributed to fewer and larger farms with larger lending needs.  Increased lending for farming operations comes as the overall risk in the Ag sector is increasing.

Adjusted for inflation, livestock loans reached a historical high point in the second quarter, while the volume of farm machinery and equipment loans shrank to the lowest second-quarter level in three years. Expectations of larger supplies and trade disputes have contributed to sharp declines in most of the major commodity prices through the month of June.

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